In a recent speech, Prime Minister Manmohan Singh noted that though India will work alongside the international community to redress global governance deficits, it had to pursue its "own strategic autonomy and independence of thought and action." As leaders of the world's major economies head to Cannes for the sixth G20 summit meeting on November 3-4, Singh's thoughts will echo widely. The promise of coordinated global action to bring the world economy back on track under the aegis of G20 has collided with the reality of governments not walking the talk to restructure their respective domestic economies.
China bears the biggest blame for not fulfilling its mandated responsibility towards the G20's oft-touted goal of 'rebalancing' the world economy. Since the economic crisis of 2008, its three-decades-long growth model - dependent on excessive savings, exports and investment - hasn't been reshaped into a private, consumption-driven system.
The share of domestic consumption in China's total GDP has increased marginally since 2008. It still remains below 40% and is expected to go up to only 45% by 2015. The inability of the Chinese Communist Party (CCP) to wean the world's fastest-growing economy away from the steroid of exports is a function of political economy factors such as the relative power of State-owned corporations and provincial party elites, as well as the lack of adequate public investment in social welfare benefits to citizens.
Moreover, consumption-based market economies tend to be multi-party democracies where political power is decentralised. The CCP doesn't wish to transfer real decision-making freedom into the hands of the Chinese citizens. Unlike India, where private domestic consumption accounts for over 70% of its GDP, China doesn't consume what it should as befits its humongous demography. This is an implicit non-tariff barrier. The resultant denial of opportunities to other G20 members who could export more to China is one reason why global growth remains stunted today.
China does consume massive quantities of primary commodities and it's singlehandedly saved economies (like Australia and Argentina) that specialise in these products from joining the wider global funk. But commodity consumption by State-owned Chinese enterprises is no substitute for private domestic consumption, which spreads benefits to a wider pool of exporting economies around the world.
In crisis-plagued Europe, Germany has also desisted from boosting its domestic consumption and widening market access to struggling peripheral export economies, which desperately need foreign exchange to beat indebtedness. Yet, the share of German private expenditure in the GDP is close to 60%, way higher than China's. The modest size of Germany's population means that even if this figure is pushed up, it won't result in the level of market expansion that China can whip up if its domestic priorities were to change in accordance with the G20's prescriptions.
One cannot gainsay the logic that countries like China and Germany should shift away from strategies of amassing trade surpluses. The fact that they haven't done so even after three years of signing on to G20 declarations means that economic nationalism and self-centredness prevail in the world economy. One sees a direct correlation between economic downturns and political pressures faced by States to avoid sacrifices that hurt domestic constituencies. The abdication of international responsibility by China and Germany has occurred in spite of proposals for a monitoring mechanism to identify and possibly punish G20 members who are aggravating imbalances in the global economy.
In a world where State elites continue to limit their sense of obligation to only domestic stakeholders, there is little place for enlightened self-interest at the international level. When major economies remain self-absorbed islands, the collective outcome can be two-paced or even multi-paced recoveries. As Manmohan Singh realises, after two decades of blistering progress in the concept of global governance, we have been thrown back to a world of 'to each his own'.
Sreeram Chaulia is vice dean, Jindal School of International Affairs
The views expressed by the author are personal